Environmental, social and governance (ESG) practices have become more than a buzzword, with businesses across all market sectors including the insurance sector, making efforts to adopt and integrate ESG practices into their day to day operations, says GlobalData, a leading data and analytics company.
A recent GlobalData insurance industry poll revealed that most respondents (21.6%) believed that managing the long-term risks of climate change is the main driver for the adoption and integration of ESG practices in the insurance sector. A slightly lower proportion of respondents 20.2% cited that the incorporation of such practices was already a key part of their company’s values and ethics and a further 19.2% of respondents felt that ESG provided an opportunity for insurance businesses to differentiate themselves from the competition.
The impact of climate change is particularly damaging to insurers, prompting them to adopt ESG practices of their own to mitigate some of the risks involved, rather than being forced to through regulation or legislation.
Beatriz Benito, Senior Insurance Analyst at GlobalData, comments: “The insurance industry faces a future of escalating costs and the consequence of ever-increasing severe weather events and natural disasters, which will only worsen with climate change. An increasing volume of claims – more often than not associated with big payouts – will eventually make some areas of land uninsurable.’’
This challenging outlook will continue to encourage those insurers who have not yet embraced ESG into their corporate values and operations to adopt better ESG practices in the future.
Importantly, only a small proportion of respondents (7.5%) believe that legislation is driving the adoption of ESG practices in insurance, which suggests that governments have more to do. However, a significant proportion of businesses believe that adopting ESG practices will help to differentiate them from the competition and build a positive reputation with the public.
Benito adds: “ESG is a double-edged sword for some insurers. With countries striving to meet emissions targets, insurers can facilitate the shift towards a low-carbon economy by adapting underwriting and investment policies. For example, by withdrawing from insuring carbon-intensive industries. However, some insurers make significant revenue from fossil-intensive industries, and will be less inclined to take the actions needed with tighter legislation only accelerating their disengagement in these areas.”
